Triangle City Planners Discuss the Present, Future of Affordable Housing Policies

By: Toby Coleman, Smith Anderson

Local governments in the Triangle continue to examine the best mix of policy “carrots” and “sticks” to ensure that new residential development in our growing region also includes affordable housing.  In a ULI Triangle roundtable event on Thursday, June 26, top planners from Chapel Hill, Durham and Raleigh discussed the current policy landscape along with Gregg Warren, the president of DHIC, Inc., a non-profit developer of affordable housing.

The panel, titled “Different Approaches to Expanding the Supply of Affordable Housing”, was moderated by ULI Triangle District Council Chair and Raleigh Interim Planning Director Ken Bowers.  It provided a summary of the current state of affordable housing policies in the Triangle as well as a sense of the policy discussions surrounding proposals to include affordable housing requirements in local zoning ordinances.

Bowers and Warren were joined on the panel by Loryn Clark, Chapel Hill’s Executive Director of Housing and Community and Patrick Young, Assistant Director for Development with the Durham City/County Planning Department.

The Background:

When policy makers discuss “affordable housing,” they are generally referring to housing that costs less than 30% of household gross income.

There are currently various “demand-side” programs in place that provide qualifying households with housing subsidies to help make housing affordable.  While these subsidies help some, there are still a number of households making less than the median income that are spending more than 30% of their income on housing.

This continued need has prompted local planners and policymakers to look at their zoning policies and ask if they can and should adopt zoning ordinances that require or incentivize the private market to build more affordable housing.

The Chapel Hill Experience:

For approximately a decade, Chapel Hill’s Town Council has had a policy in place that provides that the Town Council has the expectation that parties seeking residential rezonings will have 15% of the units be affordable.

According to data from Chapel Hill, the policy has resulted in the build out of 235 units and the collection of more than $1 million in fees-in-lieu. “The policy itself has been relatively successful,” said Clark, of Chapel Hill.

Chapel Hill has also enacted an affordable housing mandate, the Inclusionary Zoning Ordinance, that requires a set-aside for affordable housing in new residential developments.  So far, this provision is relatively untested.  To date no projects have actually been built under this ordinance, Clark said.  (One application is in process now.)

Rental developments are a notable exclusion from Chapel Hill’s affordable housing policy.  None of affordable housing requirements apply to developments being built for residential rental.

Are Incentives Economically Practical Enough to Produce Results?

Raleigh planners considered incorporating inclusionary zoning incentives into the City’s new Unified Development Ordinance, and brought in a ULI technical assistance panel to help them consider their options.  Warren of DHIC was the head of the ULI technical assistance panel.  He said that the technical assistance panel identified economic issues that raised questions about whether a voluntary inclusionary zoning program would produce results.

The problem, Warren said, was the relative cost to developers of providing affordable rental housing in new projects.  Developers can lose significant mortgage capacity by agreeing to devote a certain number of units for below-market affordable housing.  For example, Warren’s panel estimated that devoting a single unit in a suburban project as “affordable housing” that will rent at $325 below market for 30 years could result in a $55,000 reduction in the Project’s mortgage capacity.  (That estimate presumes the market rate of the apartment is $1,150.)

In these economic circumstances, Warren said “it is hard to make the numbers work without subsidies.”

Durham’s experience bears out the conclusions from the ULI’s technical assistance panel.  In Durham, projects that have 15% affordable housing qualify for a density bonus permitting them to build at a greater density than otherwise permitted.  “This bonus has been used exactly zero times,” said Young, the Durham Assistant Director of Planning.  “So lesson learned.”

Looking to the Future.

Moving forward, the panelists said their communities are working to apply their experiences with affordable housing policies to make what they have on the books work better.  The panelists also discussed the possibilities of new approaches, including “synthetic TIFs” that would allow communities to use tax increment financing to finance projects that contain affordable housing incentives.

Toby Coleman is an attorney with Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan who specializes in commercial litigation, with a focus on real estate, construction and land use law.

Affordable Housing Panelist Bios

Affordable Housing Round Table Presentation